WORKSHOPS AND COMMENTS GALORE HAVEN'T FIXED MMS ROYALTY PROPOSAL

History says much about the US Minerals Management Service proposal to change oil valuation for calculating the federal royalty on production from federal and Indian leases.

History says much about the US Minerals Management Service proposal to change oil valuation for calculating the federal royalty on production from federal and Indian leases.

Correctly observing that modernization of the oil market had made old valuation methods obsolete, MMS on Dec. 20, 1995, issued notice of its intent to make changes and solicited comments.

On Jan. 24, 1997, it published an initial notice of proposed rulemaking, which called for valuation based on futures prices and Alaskan spot prices.

A stunned industry responded that the proposed valuation method would be no more valid and much less practicable than the existing method, based on postings. The industry agreed that postings had become less valid than before as value indicators and recommended that MMS take its royalty in kind to ensure it received fair value for the oil. The market modernization that invalidated postings also made a royalty-in-kind scheme feasible, the industry said.

That's the starting place: no disagreement over the need to change valuation procedures; disagreement over how to change. The industry said the government's proposal wouldn't work and offered a counterproposal. The government said the counterproposal would cost it money.

From that starting place in January 1997, the issue has plodded along an interesting path.

MMS twice extended the comment period for its initial proposed rulemaking and held public meetings in Lakewood, Colo., and Houston.

It published a supplementary proposed role on July 3, 1997, for which it closed the comment period the following Aug. 4. In response to the comments, it reopened the rulemaking to public comment on Sept. 22, 1997, seeking information on five valuation alternatives. It extended that comment period, during the course of which it held seven public workshops (Houston twice; Lakewood; Bakersfield, Calif.; Casper, Wyo.; Roswell, NM; and Washington, DC).

On Feb. 6, 1998, MMS published a second supplementary proposed rule, this one for federal leases only. It again extended the comment period, which included workshops in Houston, Washington, Lakewood, Bakersfield, and Casper.

At the request of an interested senator, MMS reopened the comment period and held two public meetings.

On July 16, 1998, the agency published another supplementary proposal clarifying changes it intended to make in its final rule. On July 21, it received additional comments in meetings sponsored by two members of the House of Representatives. It again extended the comment period to July 31 for comments on responses it published to industry comments on its proposal, as amended and supplemented.

By then, MMS was responding to requests for explanations of its intentions and directions on the issue from Congress, which passed a moratorium on implementation of a final rule until things were sorted out. The federal budget enacted on Oct. 8, 1998, for the Department of Interior, of which MMS is part, extended the moratorium until June 1, 1999.

In response to requests from Congress, the Interior Secretary on Mar. 4, 1999, reopened the comment period. MMS scheduled more workshops-in Houston, Albuquerque, and Washington. Then it extended the comment period until Apr. 27.

Last November, Congress and the White House reached a compromise that blocked the final rule until March.

On Dec. 30, 1999, MMS resubmitted its proposed rule with further changes and is taking comments until Jan. 31.

The new proposal doesn't meaningfully address the industry's core objections to the MMS valuation proposal.

Industry officials now openly discuss taking the issue to court.

They might as well. Workshops and public comments haven't fixed the MMS mistake.

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